February 2017 Newsletter

February 2017 Newsletter

Current Market Environment by George Tkaczuk, MD, MPH

Current equity market is in a confirmed uptrend. The fact that most US indexes are hitting all time highs, accompanied by most foreign indexes is a very bullish sign. New highs are not bearish. We mention this because, at times like these, it is always easy to get distracted by repeated mantra like the market is “overvalued”, “we came too far too fast” or “Washington is dysfunctional” etc. While the aforementioned may be true, it is always better to judge what the market is actually doing as opposed to what you or someone else may think it may do. For now, the stock market is in an uptrend and the event is global.

The chart below is of the Global Dow index. The Global Dow Index is composed of 150 stocks which are weighed equally. The Global Dow tracks leading companies from around the world in all industries. It covers both developed and emerging markets. Components are selected not just for current size and reputation but also for their potential. In the chart below you can see the index is at new highs. This is a pretty good indicator of what is happening around the world; namely stock markets are trending up.



So, naturally, one may wonder what is driving this global rally? We can provide some possible insight. In the United States, fourth quarter earnings for 2016 are expected to log a 4.9% increase; this is above the previous 3.1% estimate at the end of the quarter. Furthermore, expectations for the first quarter of 2017 are an increase of 9.6% and full year 2017 growth at a 10.2% increase. Not too shabby!

Fourth quarter GDP reports around the globe are supporting global growth. A few examples are listed:


The Eurozone logged a 0.4% q/q growth:

Germany 0.4% q/q, (1.8% y/y)

Italy 0.2% q/q, (1.1% y/y)

Netherlands 0.5% q/q, (2.7% y/y)

Norway 1.1% q/q, 4.5% annualized


Some data from Eastern Europe includes:

Poland 1.7% q/q, (2.7% y/y)

Hungary 0.4% q/q, (1.6% y/y)


Data from Asia:

Japan 0.2% q/q, 1.0% annualized,

Indonesia 4.9% y/y

Taiwan 2.9% y/y

Malaysia 4.5% y/y.


The point of the above is that the world is doing much better than believed by the consensus. Once investors realize this, they most likely will continue to bid up stocks.  Politics may derail the expansion, but at this moment it appears unlikely. If it does happen, we will change our view. Confidence is rising and investors are realizing that the sky has not fallen, and this optimism may last for a while before any kind of euphoric bullish sentiment sets in. Thus, at this moment “stay invested my friend.”


Portfolio Insight: Vail Resorts by Christopher Chiu, CFA

This quarter we entered into a position in Vail Resorts for the GEIP portfolio. I relay some of our analysis so you can see an example of one of our stock-picking strategies applied to the portfolios.

While the Vail Resorts offers a healthy dividend, what impresses us more is the durability of the franchise and its potential for continual, if modest, growth. First, speaking to the durability of the franchise, these resorts are built on both public and private land and there are only a finite number of locations in the world that can become ski resorts.  Second, for any future competitor to enter such a market it would have to either negotiate with private owners of the land or if the land is public, go through a long regulatory process to make the lands available for use. In most cases a combination of both public and private negotiation with stakeholders over many years is required. Afterwards, a huge investment is required to make such an area accessible to skiers. It takes a lot of infrastructure to make mountains traversable and skiable. This includes construction of roads, ski lifts, and lodges. Overall the economic moat of Vail Resorts is one that makes it not very vulnerable to a lot of external competition.

The other reasons we like Vail is its future growth path. Future growth should be persistent even if it is modest. The growth of this company is spurred by two factors. One factor is the continual acquisition of other ski properties. Last year Vail purchased Whistler in British Columbia and just this past quarter it purchased Stowe Mountain in Vermont. In its history Vail has acquired three properties in Lake Tahoe, California, Grand Teton in Wyoming, Park City in Utah, as well as Wilmont in the Midwest, and Perisher in Australia. We expect the company to continue acquiring properties as it is among the more efficient operators in the space and is able to find synergies among its properties. Among some of the major properties not currently owned by Vail Resorts in the Rockies are the resorts in Aspen and Steamboat Springs, Colorado.

The other reason for our confidence in the future growth of Vail Resorts is the history of prices that it has been able to charge their customers. We took a look at the lift ticket prices at the major ski locations over the last ten, twenty and, where the data is available, over the last thirty years. The rate of change of lift ticket prices has been higher than inflation over that time period, as demand has allowed the owners to charge higher prices. For example, in 1980 the price for a one day lift ticket was $10; in 1990, $40; in 2006, it was $78; in 2016 sometimes $160. These various price points show a compound annual growth rate in the range of 5-8%, well above the 2-3% rate of inflation. Yet despite the rise in prices, the demand has not abated and attendance continues to increase.

Looking into the future there is a chance that price will be volatile as the valuation of Vail is more than fair given its growth. Yet, absent some dramatic change to the economics of the ski resort business, we believe the valuation to continue into the future.


The general information provided in this publication is not intended to be nor should it be treated as tax, legal, investment, accounting, or other professional advice. Before making any decision or taking any action, you should consult a qualified professional advisor who has been provided with all pertinent facts relevant to your particular situation.